Public Bill Committee

[Mr. Roger Gale in the Chair]

Clause 157

Special resolution regime

Ian Pearson: I beg to move amendment No. 177, in clause 157, page 81, line 42, after bank insert
, building society or credit union.

Roger Gale: With this it will be convenient to take Government amendments Nos. 178 and 17.

Ian Pearson: It is a pleasure to serve under your chairmanship, Mr. Gale. Without wishing to intrude into what would normally be the province of a clause stand part debate, I shall first say something about clause 157. I emphasise that the clause allows the Treasury to require the Financial Services Compensation Scheme to contribute to the costs of the special resolution regime. As we have discussed before, the Government believe, as a point of principle, that the financial services sector, through the FSCS, should contribute to the costs of the SRR.
The amendments are all technical. Government amendments Nos. 177 and 178 amend the clause to allow the FSCS to contribute to the costs of the resolution of building societies and, if the stabilisation powers were extended to credit unions, credit unions as well. That ensures that our approach to the FSCS contributing to the costs of resolving banks can be extended to building societies and, if needed, credit unions. We discussed that earlier today.
Government amendment No. 17 ensures that the FSCS contribution to the SRR will not be classified as FSCS management expenses. That brings the treatment of the FSCS funding of the SRR in line with the treatment of the FSCS funding of compensation payments to claimants under the scheme. I commend these sensible technical amendments to the Committee.

Mark Hoban: It is a pleasure to serve under your chairmanship, Mr. Gale. I point out, for the benefit of Government members of the Committee, that it is only as a consequence of the presence of Opposition members in Committee this afternoon that the Committee can continue, as I think that the Government Benches are not quorate. I am sure the usual channels are cognisant of our good will in ensuring that the Bill proceeds.

Bob Blizzard: By maintaining their places, Opposition members enable Government members to be carrying out other duties in the corridor. Those members will return to Committee in due course.

Mark Hoban: It is always better for armies to be visible than invisible, according to my friends with military experience.
I want to ask the Minister about Government amendment No. 17. I had intended to raise this point in a clause stand part debate. In the context of the rescue of Bradford & Bingley, my understanding is that the interest that is being charged on the £14 billion that the FSCS has borrowed is classified as management expenses and therefore will be borne not by the depositing sector within the FSCS, but by all participants in itindependent financial advisers, investment managers, insurers and so on. I listened to the Ministers explanation of Government amendment No. 17. Will that have retrospective effect or will IFAs and others have to bear that cost, as it is currently classified as part of the management expenses?

Ian Pearson: My understanding is that the FSCS was used to fund the deposit book transfer of deposits to Abbey Santander, and this is similar to the provisions in the banking insolvency procedure in the Bill for a deposit transfer, which the Bill provides for the FSCS to fund through clause 110(1)(b). Provision by the Treasury under clause 110 for the FSCS to fund the use of a stabilisation tool would technically occur before the onset of insolvency, and therefore before the FSA can currently activate the FSCS. However, that does not mean that the firm in difficulties might be resolved at lower cost to FSCS levy payers.
As I explained when dealing with amendment No. 17, our intention is to bring the treatment of FSCS funding of the SRR into line with that for its funding of compensation payments to claimants under the scheme. We believe that we have achieved that.
The hon. Gentleman asked about interest. Yes, interest is regarded as a management expense. However, it is a specific expense that is borne only by deposit takers, so individual financial advisers do not pay. I hope I have clarified the point.

Mark Hoban: I am grateful to the Minister for that clarification. Having had conversations with IFAs, I know that the position that he has outlined will be welcome to them, as there was ambiguity about the provisions for the FSCS and others. IFAs will be grateful to the Minister for clarifying the matter.

Colin Breed: I accept the amendments. However, I am sure the Minister is aware that there is much disquiet among building societies about their contributions to the fund in the current circumstances. The formula is based upon their retail deposits, which in the past was not a bad measure. The more deposits they have, the more they should contribute to the fund. In todays circumstances, we are bailing out people with relatively little in retail deposits. Much of the problem is caused by the fact that the building societies have relied on the wholesale market. It seems a tad unfair that those that have been operating with significant retail deposits and lending a proportion of that money, which is much more prudent in todays circumstances, are now being required to pay a larger ratio into the FSCS fund.
I put that down as a marker because I believe the Minister ought to consider the formula for contributions before Report.

Ian Pearson: I understand the point raised by the hon. Gentleman, which was discussed briefly in earlier debates. I know that some building societies feel strongly about the matter, and I understand that they have been making representations to the Financial Services Authority, among others. I have no doubt that those representations will continue. The Government will continue to follow the situation closely.

Amendment agreed to.

Amendments made: No. 178, in clause 157, page 81, line 44, after bank insert
, building society or credit union.
No. 17, in clause 157, page 83, line 3, at end insert
(2) At the end of section 223(3) of the Financial Services and Markets Act 2000 (management expenses) add ;
(c) under section 214B..[Ian Pearson.]

Question proposed, That the clause, as amended, stand part of the Bill.

Mark Hoban: I have some questions about the operation of the clause. I take the Minister back to his brief opening remarks on the last group of amendments. Let us look at the matter in a different way. Traditionally, when there is an administration or insolvencya process to sort out the problems of a failing company, be it a bank or otherwisethe cost of the process is borne by the company itself, not by its peers. Why should sound and stable banks pay the costs of a bridge bank, temporary public ownership or the transfer to a private sector purchaser? Surely the investors in the company, principally the shareholders, should pay either through a lower distribution on wind-up or through lower proceeds on sale. Why is it appropriate for banks that have not failed to pay the costs of a bank that has? I distinguish between the FSCS in its normal activities and some of the costs incurred in the process under discussion.
I shall move on to more detailed questions about the individual parts of proposed new section 214B. Proposed new subsection (1)(b) states that the section applies where
the Treasury think that the bank was, or but for the exercise of the stabilisation power would have become, unable to satisfy claims against it.
To what extent would the bank have to be unable to satisfy those claims for the Treasury to exercise that power? We have just debated amendment No. 17 about the treatment of expenses, which relates to proposed new subsection (2). The assumption in proposed new subsection (3) appears to be that the costs will be borne by the banksthe Minister provided clarification on amendment No. 17 on that basisbut the new subsection does not make it clear that that cost will always be borne by deposit takers. Is the expectation that other members of the FSCS could bear those costs or would those costs, in the first instance, always rest with the deposit-taking sector?
On proposed new subsection (3)(a), how will the Treasury determine the costs that will borne by the scheme? What principles will it use to determine which costs will be borne by the scheme and which will be borne elsewhere? We spoke about Bradford & Bingley on the previous group of amendments. The FSCS has taken out a loan of £14 billion to fund the transfer of balances. Scheme members will bear the interest on that, which is about £900 million per year, and they could, potentially, also bear any defaults on the Bradford & Bingley mortgage book. One assumes that if a similar partial transfer had to be used in the future, the FSCS would bear the same type of costs.
I am not sure how much wider the definition of costs could go. Will the scheme cover the operational costs of a bridge bank, or will the bridge bank be expected to pay for those? If an indemnity on the value of the mortgage book is given to a purchaser, will the Government expect the scheme to bear those costs? Are there other operational costs that the Government expect the scheme to bear? What are the parameters of the costs that the scheme could bear? It would be helpful to provide some predictability.
Proposed new subsection (3)(b) states that the Treasury shall make regulations
providing for independent verification of the nature and amount of expenses incurred.
It also refers to the potential appointment of an auditor. I alluded to that is an earlier debate on the objectives, when I raised the issue of money being used in an efficient and economical way. Who will control and monitor the amount that is being spent? It is all very well auditing something, but that is a retrospective check. Will there be a prospective check? If the FSCS and its members are to bear the costs, is there a role for them, alongside the tripartite authorities, in agreeing the types of cost that could be incurred? Potentially, they will be writing a blank cheque to the tripartite authorities and they would like a level of control over the types of cost that they will be expected to pick up. The proposed new subsection is not clear on whether that control would be in place.
I had some difficulty understanding proposed new subsection (4), maybe because I am not a lawyer. Perhaps the drafting is clearer to those better versed in the law than I. I think it is trying to set a cap on the amount the scheme would pay, so that it would not exceed the amount payable if the stabilisation power had not been exercised. I assume that means that, rather than a failing banks being dealt with through one of the stabilisation options in part 1, it would become insolvent and be dealt with through administration or insolvency or the bespoke tools that we are going to deal with in part 2 and part 3. That is the comparison that will be made.
The Minister will recognise the complex and subjective nature of the judgment that the valuer would need to reach. The outcome of those judgments would have a significant impact on the cost incurred by the scheme member. Will the Treasury consult with scheme members before issuing regulations to ensure that there is some consensus on the rules that will guide the independent valuer? I am not saying that that will determine the outcome but clearly there would be an opportunity to reduce the conflict between scheme members and the tripartite authoritiesperhaps avoiding the need to appeal to a court or tribunalif there were some consensus about the process that a valuer would use in approaching a valuation.
Again in proposed new subsection (4), I think the expense is limited to the amount the scheme would have paid out. Is this calculated on a gross basis, that is, does it not take into account the recoveries from the bank or the amounts actually paid out? If the amount that would have been paid out was £10 million but for the stabilisation options, but only £5 million had to be paid and, of that, a bank had assets that would cover £3 million of costs, it would end up with the FSCS bearing a cost of only £2 millionthat is, the amount paid, net of recoveries. What is the limit that the scheme will pay? Is it the £10 million; is it £8 million, as the explanatory note suggests; or is it the level of recoveries of £3 million? I am not sure how, in proposed new subsection (4), paragraphs (a) and (b) interact with each other to determine the amount the scheme will have to bear. I would be grateful for clarification.
Regarding proposed new subsection (7), my understanding based on the explanatory notes is that these expenses could be funded from a pre-funded Financial Services Compensation Scheme. Will the Minister confirm that that is the intention of proposed new subsection (7)?

Ian Pearson: Let me begin by restating why the Government believe, as a point of principle, that the financial services sector, through the FSCS, should contribute to the costs of the SRR. I will then address a number of points raised by the hon. Gentleman.
There are two strong arguments why the financial services sector should be contributing to the costs of the SRR through the FSCS. First, where intervention is necessary to prevent costs to the wider economy of the failure of a bank, we believe there is a compelling argument for banks to contribute to that cost because banksand the financial services sector more widelybenefit directly from the achievement of the SRR objectives, particularly the objective of enhanced financial stability and confidence in the banking system. It is therefore entirely appropriate that the sector should contribute to measures that achieve these objectives. Secondly, but for the use of a resolution tool, the financial services sector would have to fund through the services of the FSCS the cost of compensation to depositors arising from the failure of a deposit taker. Therefore it is also entirely appropriate that the Treasury may provide that the banks contribute to the costs arising from the exercise of the special resolution regime tools that are designed to address a failing bank.
In response to consultations on the provision, the banking industry has consistently opposed our plans. In its view, the costs of resolution should be met by an acquiring company or the insolvent banks estate. However, industry should be called upon before taxpayers contribute to any shortfall.

Mark Hoban: Is it the Ministers view, therefore, that the acquirer or the estate of the failed bank should bear the costs initially, and that anything in excess of that should be borne by the wider financial services sector?

Ian Pearson: That probably depends on the circumstances and the particular transaction. I have tried to outline the general principles that underpin clause 157. The clause notes that the FSCS will be called upon to contribute to the resolution costs when a stabilisation power under part 1 of the Bill has been used, and when the Treasury considers that, but for the exercise of that power, the FSCS would have normally been triggered to pay out to depositors under the provisions of the Financial Services and Markets Act 2000.
I shall draw the Committees attention to a number of safeguards that the Bill puts in place around that power. First, as set out in subsection (4)which the hon. Gentleman spent some time discussingthe Treasury will only contribute up to the hypothetical cost of depositor compensation payments. Secondly, as also set out in that subsection, if the FSCS pays out to depositors it should not be called upon to contribute to the costs of any other resolution tools for the same bank. Finally, as set out in subsection (3), there will be independent verification of the nature and amount of the expenses incurred.
The hon. Gentleman queried the meaning of unable to satisfy claims against it. I am advised that that is a standard term that refers to when the FSCS will be triggered. It is in part 5, chapter 15 of FSMA. The subsections regarding the resolution received many probing questions from the hon. Gentleman. I have already drawn particular attention to subsection (4), which outlines some of the requirements of the regulations, and subsection (3) sets out that the Treasury can make regulations to specify the expenses that the FSCS should contribute to. It is important to recognise that the regulations will be fully consulted on. To return to the hon. Gentlemans example, we do not think that the operational costs of the bridge bank would be included.
While we will consult on the regulations, it might help to briefly indicate some examples of what resolution costs could include. We have in mind the market value of any guarantees provided by the authorities to the bank, financial assistance provided to support a resolution, the administrative costs of the SRRfor example, the cost of an advisory service procured by the authorities to effect a resolutionand certain compensation costs.
The hon. Gentleman also asked whether the acquirer pays the resolution costs. Yes, the acquirer will bear those costs. For example, under the bank resolution fund the proceeds of any resolution will flow back to compensation costs.
The hon. Gentleman also raised the issue of consultation. He asked whether the Treasury will consult with scheme members on the rules that will guide the independent valuer, and I want to be clear that the answer is definitely yes. We can consult on any principles, but we must recognise that valuation involves complex calculation of a hypothetical insolvency, so it might not be appropriate to involve FSCS members in all of the independent valuers procedures and calculations. I hope he appreciates that throughout the Bill we have always wanted to commit to working with the industry in a consensual, open and transparent manner, and that applies to the extent that it is possible to do so in this case, just as it has with other aspects of the Bill that we have discussed.

Mark Hoban: I am grateful to the Minister for those answers but am concerned about who will bear the costs initially. He indicated that the acquirer would bear some of the costs through the bank resolution fund, but I am still not clear that the creditors and shareholders would bear some of that cost as well. I am with the Government on ensuring that the taxpayer does not bear the cost, but there is a residual concern that in trying to do so we give the impression that the first port of call is the FSCS, rather than the acquirer or creditors. I might return to that point on Report to get a little more detail clarifying the ordering.
From the Ministers comments about the limit on how much could be paid, I think we may take it that if the hypothetical cost was £10 million and the FSCS only paid out net £5 million, the contribution that members would make could still be a further £5 million; so the way in which that works is now clearer in my mind.

Question put and agreed to.

Clause 157, as amended, ordered to stand part of the Bill.

Clause 77

Overview

Question proposed, That the clause stand part of the Bill.

Mark Hoban: This point might seem rather trivial to the Minister, but I would like to know why in subsection (1) the procedure is described as insolvency. The normal procedure is either liquidation or administration, so insolvency seems to be a new term invented for the purposes of the Bill to describe the process. Indeed, it becomes clear in subsection (2)(b) that the order appoints a bank liquidator, and that term is used thereafter fairly regularly. Indeed, clauses 86 to 89 deal with the process of bank liquidation.
I am not sure why the Government have chosen to introduce the word insolvency. Someone rather crudely suggested that, given that these things are normally matters for the Department for Business, Enterprise and Regulatory Reform, the Treasury was a little more lax in its language, but knowing the Ministers dual role, I am sure that he would not have allowed that to happen. It would be helpful to know why insolvency was used in this case rather than the more traditional liquidation.

Peter Viggers: I should like to probe the thinking behind the clause. My understanding is that in some jurisdictions a failed bank is subject to the general corporate insolvency laws, as is the case in this country. I understand that there are special regimes in other countries, including Italy, Norway, Canada and the United States. The Governments principal reason for bringing in a special regime, as stated in the explanatory notes, is that depositors who are eligible claimants under the terms of the FSCS are paid out promptly when a bank fails. As I understand it, the Government intend that to be the main thrust of the proposed new insolvency regime. Then there are some other objectives which were listed in the Governments consultative document earlier this year. The first is that depositors might be deprived of access to their accounts at very short notice if there is no special regime. The second is that no objectives exist around the fast pay-off of depositors. The third is the likely destruction of any residual franchise value. The fourth is the risk of contagion to other banks.
I can see why the Government gave consideration to the creation of a special regime. However, I draw to the Ministers attention the fact that the majority of correspondents to the January 2008 consultation felt that wholesale changes to current insolvency provisions were not required to ensure rapid payments to eligible FSCS claimants. Several parties suggested that any new procedure should be closer to liquidation than the creation of a new regime. But the Government have proceeded to create this new regime.
To what extent has the Minister consulted with other international bodies responsible for bank supervision in order to try to ensure that the globalisation of banks is reflected by a similarity of treatment? To what extent has he had discussions with the responsible bodies in our European colleague countries, with responsible bodies in the United States and in other countries that are becoming increasingly important in a globalised market? While these provisions for a new regime in the United Kingdom are before us, I should like to know a bit about the Governments thinking in arriving at this conclusion and putting these proposals before us. In particular, can the Minister tell us about any discussions he has had to try to ensure that our regime does not stand alone, but is carefully co-ordinated and preferably made similar to those of other countries?

Ian Pearson: The clause introduces part 2, which sets out a new insolvency procedure for banks, based on existing liquidation provisions. I should like to respond directly to the question posed by the hon. Member for Fareham about the use of the term insolvency here. We use it because the draftsman thought that it would be a more natural, modern term in this context than liquidation.

Mark Hoban: Why, then, is the draftsman inconsistent later in this part of the Bill? Clauses 86 to 92 are headed Process of bank liquidation, which seems a very archaic use of words.

Ian Pearson: I suspect that the answer is that insolvency can involve liquidation and administration too. We would need to refer to existing law. In due course the draftsman may put words into my mouth so that I can respond further.
I want to respond the point made by the hon. Member for Gosport about the importance of the existing insolvency law. There has been extensive consultation between the Government and insolvency practitioners in this area. We believe that we have the right sort of balance in terms of ensuring a fast payout procedure, while having a system of law with which insolvency practitioners are already familiar. The fact that there has not been a flood of suggested amendments to the clauses from those outside who follow these matters shows that there is strong consensus in this area.
The Governments objective is to ensure effective protection for depositors and to minimise the impact of a bank failure, while also providing for the orderly winding up of the affairs of a failed bank in the interests of its creditors generally. I shall set out the thinking behind the clause. In doing so, I hope to provide an overview for future debates on the bank insolvency procedure, which is established in part 2 of the Bill. The procedure will enable prompt FSCS payments to be made to eligible depositors or their accounts to be transferred to another institution. It will also provide for the winding up of the affairs of a failed bank in the interests of creditors as a whole.
The point about allowing depositors fast access to their funds in the event of a bank failure is an important one. As my hon. Friends on the Treasury Committee noted, it is not just the level of FSCS compensation payout that is importantthe speed of payout is also vital. The Chairman of the Committee, referring to moves to raise the compensation limit to £50,000, stated:
It is far more important that banks be able to identify who their insured depositors are, and that the FSCS be able to process compensation claims quickly.
Making fast payout to depositors is indeed crucial. For depositors of UK banks to have confidence in the system, they need to be sure that the payment will be made quickly, and that they will be able to access their deposits quickly. Measures to enable depositors to access their funds quickly are important for their own sake, but also to build confidence in the banking system as a whole, and for the maintenance of financial stability.
In response to comments by the hon. Member for Gosport, I shall talk briefly about how the new bank insolvency procedure has been developed. An established feature of the UK insolvency system is the existence of special insolvency regimes for industries where failure poses unique challengesfor example, water, energy and rail. Those special regimes are based on provisions of the Insolvency Act 1986. Like those special insolvency regimes, the bank insolvency procedure is a unique process. However, it is based largely on existing provisions in UK insolvency law and practice, particularly relating to the compulsory liquidation of companies. It is worth emphasising the point that, during our consultation process, stakeholders constantly referred to the strength of the existing insolvency regime in the UK, noting its advantages over other insolvency regimes internationally.
The Financial Markets Law Committee put it very well in its response to the April consultation paper:
The existing corporate insolvency laws in England and Wales...provide for one of the most versatile and effective insolvency regimes in the world. They are often used as a model for jurisdictions improving or developing their laws.
That is a fairly comprehensive endorsement; other stakeholders made similar points about the insolvency provisions. They were anxious, therefore, that the Government should not make substantial changes. Bearing that in mind, we are confident that our approach is the right one.
The bank insolvency procedure builds on the strength and effectiveness of the UKs existing insolvency regime, closely following existing insolvency law and practice. It will be familiar to companies and their professional advisers. We have not changed the statutory priority order of creditors. Consistent with existing special insolvency regimes, it is a court-based procedure, which means that it can be commenced only by a court order, and the whole process will be subject to the overall supervision of the court. That will ensure transparency, legitimacy and compliance with the Human Rights Act and provide a forum for dispute resolution. Many other provisions remain substantially the same as existing insolvency law, as we shall note when we come to the relevant clauses.
As with the existing special insolvency regimes, the bank insolvency procedure has some specific features to reflect the unique challenges of winding up a bank, and the Governments specific objectives of protecting depositors and maintaining financial stability. As I have mentioned, the key difference from normal insolvency is that as well as providing for the winding up of a banks affairs, the process will enable prompt FSCS payments to eligible depositors, or else allow for a bulk transfer of their accounts to another institution. To that end, the liquidator of the bank will have specific statutory objectives: to work with the FSCS to enable prompt payouts to eligible depositors or to facilitate the bulk transfer of accounts to another institution; and to wind up the affairs of the failed bank in the interests of creditors as a whole. The authorities and the FSCS will have a key role in the early stages of the proceedings to oversee and work with the bank liquidator to ensure that those objectives can be met.
I have used the word liquidator. Let me explain. The word liquidation has to be used later in the Bill, because it is the technical, legal term. In the overview clause, we can be looser, more familiar and clearer with the readers, but we have to be precise when it comes to the details of the Bill.
Clause 77 outlines the bank insolvency procedure in broad terms. A bank enters the process by court order, appointing a bank liquidator. The bank liquidator aims to arrange for the banks eligible depositors to have their accounts transferred or to receive compensation from the FSCS. To achieve that, the bank liquidator will work with the initial liquidation committee, made up of the authorities and the FSCS. When that is done, the bank liquidator winds up the bank. To carry out those functions, the bank liquidator has the powers and duties of a liquidator in normal insolvency as applied and modified by clauses that we shall discuss subsequently.
I hope that by giving a lengthy introduction to clause 77, I have set out clearly the Governments thinking and the principles that were applied in framing the subsequent clauses. They have been consulted on to a very large extent and have the broad support of insolvency practitioners.

Peter Viggers: While listening to the Ministers careful explanation of the clause, I wondered whether liquidation insolvency is a one-way street. If a liquidator were to be appointed and found that he was in a position to manage the bank out of its current difficulties, would he have the powers to do so? Would he have the powers of a manager as well as of a liquidator?

Ian Pearson: My understanding is that we are talking about a bank insolvency procedure in relation to which decisions have already been taken that the bank has failed to all intents and purposes and is not viable as a business. It is in those circumstances that a court order is made and liquidators are appointed. It has gone past the stage when there is any realistic prospect of life in the body, as I understand it, so the role of the liquidator is to

Stewart Hosie: In that case, why do we have clause 101, which refers to a liquidator who thinks that administration would achieve a better result? That provision exists in the Bill. The Ministers answer was clear, but I wonder how it applies to clause 101, which allows administration as a legitimate objective, not just liquidation.

Ian Pearson: I am about to stand corrected. My understanding was obviously far from perfect, because I am advised that bank liquidation can end in a number of ways. I suspect that the way I was describing is the most likely, but if rescue is possible, it is certainly possible to convert to administration to assist a rescue. I hope that answers the questions asked by the hon. Member for Gosport.
I hope that by giving a broad introduction to clause 77 and the bank insolvency procedure, I have clearly set out our thinking. I stress that the area has been widely consulted on and there is broad support from the insolvency profession for what we are doing.

Question put and agreed to.

Clause 77 ordered to stand part of the Bill.

Clauses 78 and 79 ordered to stand part of the Bill.

Clause 80

Interpretation: other expressions

Question proposed, That the clause stand part of the Bill.

Mark Hoban: I draw the Ministers attention to clause 80(4)(a). As I understand it, no de minimis limit applies, so if a bank was unable to pay a sum that was duesay, £10the insolvency procedure could be triggered, but how does that interact with the threshold conditions? We have established that the stabilisation powers will be operated only if the FSA believes that the threshold conditions have been breached. Presumably, there would have to be a material breach of the threshold condition about adequate resources to trigger some of the Bills processes. Is there a gap between that approach to triggering the procedures and the approach in subsection (4)(a), which I suspect is fairly standard, but which suggests that an inability to pay a trivial amount could trigger them?

Ian Pearson: I admit that I do not have an answer to that question now. In general, the clause simply sets out the meanings of terms used throughout part 2. I need to seek clarification on the exact interrelationship that the hon. Gentleman is talking about, so if the hon. Gentleman agrees, I shall write to him.

Question put and agreed to.

Clause 80 ordered to stand part of the Bill.

Clauses 81 to 85 ordered to stand part of the Bill.

Clause 86

Objectives

Question proposed, That the clause stand part of the Bill.

Mark Hoban: The clause is important because it sets the two objectives for the liquidator. The first is about the depositors and ensuring that the liquidator works with the FSCS to ensue that
as soon as is practicable each eligible depositor...has the relevant account transferred to another financial institution, or...receives payment from (or on behalf of) the FSCS.
The second objective is
to wind up the affairs of the bank so as to achieve the best result for the banks creditors as a whole.
and subsection (4) makes it crystal clear that
Objective 1 takes precedence over Objective 2.
That creates a situation in which the interests of one group of creditors take precedence over the interests of other groups. A depositor preference is being built into this regime. We might find that the liquidator, to fulfil objective 1, incurs additional costs to the detriment of achieving objective 2. That particularly applies to the administration procedure in part 3, but it also applies here. For example, the liquidator might need to keep the branch network open for two or three weeks to enable payments to be made to depositors. Running a branch network is an expensive businessrent has to be paid, staff have to be employed, there are computer costs and so on. Those costs will be not be borne by the depositor group, but by the creditors, who will find that their dividend or distribution on liquidation is lower as a consequence. Will the Minister comment on that?
This is a move away from the traditional way that administration and liquidation work. The creditors would normally rank pari passu, but here there is one subset of creditorsthe depositorswho are given preferential treatment over the others, to the detriment of other creditors.
Linked to that is a point that has been raised with me by some lawyers. The Minister was right in his remarks on the previous clause. There has not been a flurry of commentary on part 2 or part 3 of the Bill, but that does not mean that there is total satisfaction. There is great dissatisfaction with it. The credit institutions reorganisation and winding-up directive 2001I am sure that we are all intimately familiar with itenables the same legal process and procedures for winding up a credit institution to apply in all the then EU states, but now European economic area states.
The process is a formality. That directive is predicated on treating creditors collectively and applying the same treatment. The Minister referred to the special insolvency regimes for railways, water and electricity. Yes, there are special cases to ensure that there is a transfer of functions, but in those situations all creditors are treated equally, whereas in this situation one group of creditors will have preference.
Concern has been expressed that the action taken by our good friend Iceland was not deemed to be consistent with the directive because it was seen to be of a regulatory nature. The concern expressed to me is that objective 1 could suggestand there is a stronger argument for this in part 3that the procedure is not necessarily about insolvency, but is principally a regulatory issue. I would be grateful for the Ministers confirmation that he believes that the bank insolvency process is entirely consistent with the directive. I hope he can satisfy the Committee on that point.

Ian Pearson: The clause gives the bank liquidator specific objectives and he or she will be expected to start working towards the achievement of both objectives as soon as the proceedings commence.
I will briefly explain the background. A bank liquidators first objective as specified in the clause is to work with the FSCS in the initial stages of the proceedings. The liquidator has two options: to ensure that the accounts of eligible depositors are transferred to another financial institution, thereby providing those depositors with continuity in banking services, or to work with the FSCS to ensure that those depositors receive prompt compensation payments to enable them to rearrange their financial affairs and meet day-to-day living expenses.
The authorities remain committed to a target of seven days, providing the depositors of a failed bank with at least a proportion of their deposits and the balance within the following few days, though we recognise that this is a challenging target. A bank liquidators second objective is to wind up a failed bank through realising its assets and distributing the proceeds to the banks creditors.
Although the legislation provides for objective 1 to take precedence over objective 2, as the hon. Member for Fareham suggests, it is very clear from subsection (4) that a bank liquidator is obliged by the clause to start working towards achieving both objectives as soon as he or she takes office.
In our view, only an insolvency practitioner who has sufficient resources available to make sure that both objectives can be successfully achieved would be appointed as a bank liquidator. So, while some staff are working towards achieving objective 1, others will be carrying out functions as they would in a normal liquidation, for example gathering information from directors, identifying and protecting the assets of a failed bank for the benefit of all its creditors, dealing with enquiries from creditors and so on.
Given the size and complexity of UK banks, it is likely that more than one insolvency practitioner, perhaps from different firms where necessary, will be appointed as bank liquidators. That is called a joint appointment and is provided for by the application of section 231 of the Insolvency Act 1986 in clause 90 of the Bill. This is common practice in complex or high profile insolvencies and will ensure that sufficient resources are available to protect depositors, while conducting the proceedings in the best interests of the failed banks creditors as a whole.
I appreciate the points raised by the hon. Gentleman. There has been some concern from stakeholders that, because the bank liquidators primary objective is to work with the FSCS, this may lead to depositor preference, with other creditors losing out. I will respond to those concerns directly and put it on the record that the bank insolvency procedure does not introduce depositor preference.
The statutory order of priority of creditors remains unchanged. Payment to depositors will be made by the FSCS, not from the assets of the failed bank. The FSCS will continue to rank as an unsecured creditor alongside the claims of other ordinary creditors. It is also important to note that under clause 110, any compensation payments to eligible depositors will be made by the FSCS.

Mark Hoban: The Minister has clarified that, but in the context of clause 86(2)(a), as depositors are flipped over into another institution, they will be replaced as creditors by the FSCS.

Ian Pearson: Yes, that is my understanding. We are not introducing depositor preference. The difference is that we want to pay out fast to depositors. That is the purpose of the measure, and what the Treasury Committee wanted us to do.
As I have described, the bank liquidator is also obliged to wind up the affairs of the company from day one in the best interests of creditors as a whole. As we can discuss, if necessary, in relation to clause 87, in a normal winding-up, a liquidation committee would not even be formed until a month or two into the proceedings. Given that we are aiming for eligible depositors to be paid within seven days, and that the liquidator will be working on both objectives at once, realistically, in comparison with a normal insolvency, there will be no delay in the start of winding-up in the interests of all creditors.
These objectives and the other provisions in part 2 mean that when a bank fails, the interests of both eligible depositors and other creditors will be protected. The key purpose is to ensure fast pay-out, without disadvantaging other creditors, and certainly without introducing depositor preference. I am happy to clarify that.

Question put and agreed to.

Clause 86 ordered to stand part of the Bill.

Clause 87

Liquidation committee

Question proposed, That the clause stand part of the Bill.

Mark Hoban: The Minister alluded to the liquidation committee, and it is interesting that in the first instance it will consist of three individuals, one each nominated by the Bank of England, the FSA and the FSCS. Given that from the outset, the liquidator is supposed to work towards achieving both objectives 1 and 2, why are creditors not represented on the committee at that stage, and why is it that only when a full payment resolution has been made, creditors may be represented on the committee?
If the liquidator is working towards both goals, surely a representative of the creditors should be on the committee to represent their interests. The Minister said in response to clause 86 that the FSCS would not stand in the stead of depositors when their money has been paid out. That reinforces the point that the creditors rank second to, and not alongside, other depositors.

Ian Pearson: No, they do not. Creditors are excluded only from the initial liquidation committee, because of the need for quick action to ensure that depositors receive their compensation or have their accounts transferred as quickly as possible. The initial liquidation committee will be formed by the Bank of England, the FSA and the FSCS, who will work with the banks liquidator to ensure that appropriate arrangements are in place for a transfer of accounts, or to ensure that eligible depositors are paid quickly.
It is right that the FSCS should be part of that initial liquidation committee, because it will be a large creditor. However, when a bulk transfer of accounts has taken place, or payments have been made to eligible depositorswe want that to happen within seven days for at least a proportion of their funds, with the balance following in the subsequent few daysthe liquidation will then proceed in much the same way as normal, and creditors will be able to form a liquidation committee if they wish.
In a normal insolvency, a meeting of creditors may decide on formal liquidation, but it would be a month or two before any meeting of creditors is held, so the timing in the Bill should not delay things. We are saying only that creditors other than the FSCS would be excluded from the initial liquidation committee. However, very quickly, once a bulk transfer and the arrangements that I have outlined are made, we would move towards a normal liquidation situation. In those circumstances, creditors would be expected to be part of the liquidation committee.

Peter Bone: It is very unusual to have a liquidation committee with no creditor representation. I can understand that the Minister does not want that representation initially, but he cannot argue that it is a matter of speed. If there was a formal committee with the Bank of England, the FSA and the FSCS, it could certainly include a creditor. I would have thought that general creditors would be happier to have some representation right at the beginning. I cannot see a problem with that, unless the Government have a principled objection.

Ian Pearson: Let us compare this to the process for a normal liquidation. We are talking about an initial fast front-end process and a committee consisting of the FSCS, the Bank of England and the FSA, working with the liquidator to ensureprobably in most circumstancesa quick bulk transfer of accounts or fast payout. After that, the rump of the liquidation would go through the normal process, with creditors involved on the liquidation committee. That is how I envisage the process operating.

Mark Hoban: If it is a fast front-end process, does the Minister envisage the initial liquidation committee lasting for only one or two weeks, rather than for several months? After all, we have talked about payments made within seven days and we saw the transfer of deposits from Bradford & Bingley to Abbey Santander literally overnight. Subsection (6)(d) suggests that the FSCS may resign from the liquidation committee. Presumably, if it was still a creditor of a bank and did not choose to resign, it would remain part of the liquidation committee and other creditors could join.

Ian Pearson: As I have been trying to explain, we are talking about a two-stage process. I likened it to an initial fast front-end process. Normally, a month or two into the winding-up proceedings, a liquidation committee would be formed at the request of creditors following a meeting of those creditors. The arrangements we are discussing are not the normal way of doing things; we have proposed them to try to speed up the process. That is the purpose of subsections (1) and (2), which provide that following the making of a bank insolvency order, a liquidation committee must be formed made up of representatives from the Bank, the FSA and the FSCS. Those are the appropriate bodies to be included in the initial liquidation proceedings.

Peter Bone: In a normal situation, the Minister would be correct, but the situation is abnormal. Huge assets are being removed from the enterprise, which desperately affects the remaining creditors. Unless he has a particular objection, I cannot see why there cannot be provision for a creditor to be on that committee, just to represent the interests of all the other creditors. I do not see what harm there is. It can only be of benefit, can it not?

Ian Pearson: A key point in response to the hon. Gentleman is that the assets are not being removed from the liquidation. The FSCS pays out when it comes to depositors and will become an ordinary, unsecured creditor as part of the liquidation. Once we have moved from stage one of the process, we move to stage two. Once eligible depositors have been paid by the FSCS, or their accounts have been transferred, the liquidation committee will pass a full payment resolution. Following that, if the creditors elect to continue with a liquidation committee they will take the place of the authorities on that committee, so we move into a normal liquidation phase. Many of the formalities concerning membership and the role of an ordinary liquidation committee are set out in secondary legislation and subsection (7) preserves that position for the bank insolvency procedure.
The clause is important. It provides the authorities with a key role in the early stages of the proceedings. It enables the FSCS to make a fast payout and then to stand in the shoes of depositors by being an ordinary unsecured creditor. Then we move to the second stage of the liquidation, where the creditors would take the place of the authorities on the liquidation committee and events would proceed as with the normal liquidation process with which people are familiar. In our view, that is a sensible measure, which combines procedures that will be familiar to companies and their professional advisers with the short, first phase that we believe is important if we are to achieve the objectives of the bank insolvency procedureto ensure a fast payout through the FSCS.

Question put and agreed to.

Clause 87 ordered to stand part of the Bill.

Clause 88

Liquidation committee: supplemental

Question proposed, That the clause stand part of the Bill.

Peter Viggers: It is quite unusual to read that a meeting is quorate
only if all the members are present,
as specified by subsection (2). I realise that under subsection (6) it is possible for the nominating body under clause 87(2) to replace its nominee at any time, but it could be quite inconvenient to call three people together under the same roof at short notice. The point would be completely resolved if being present was interpreted as being present in person or by telephone, which may be the interpretation the law would put on the clause. It is a tiny point, but I should be reassured if the Minister could look into it.

Ian Pearson: I confirm that the liquidation we are talking about in this subsection is stage one of the liquidation process, so it is just the liquidation committee: the Bank, the FSA and the FSCS. It is right that all three should be present. I am sure that the Bill has not been written in a way that is completely inflexible. There would be representatives from those organisations, but all three should be present and involved in the decisions that are being taken at the initial stage.

Question put and agreed to.

Clause 88 ordered to stand part of the Bill.

Clause 89

Objective 1: (a) or (b)?

Question proposed, That the clause stand part of the Bill.

Mark Hoban: My assumption regarding the action that the administrator should take in implementing objective 1prompt payout to customersis that the order of preference for that action is not as set out in the Bill:
Objective 1(a)...Objective 1(b)...Objective 1(a) for one specified class of case and Objective 1(b) for another.
It would actually be objective 1(a), then the hybrid of 1(a) and 1(b) and, perhaps as a last resort, objective 1(b), given that 1(a) provides fast payout for all depositors, the second option provides fast payout for some and the third is the default. I assume that is how the liquidation committee would judge the various options.

Peter Viggers: Similarly, may I assume that if circumstances were to change quickly and dramaticallyas they can in a fast-moving situationit would be possible for the liquidation committee to change its options and indicate that to the bank liquidator?

Ian Pearson: In direct response to the question put by the hon. Member for Fareham, it would probably be wrong to speculate on the detail of future cases. The authorities would want to make a decision based on the available information. They would be working behind the scenes to figure out whether a bulk transfer of accounts was possible in respect of subsection (1)(c). If not, they would obviously resort to objective 1(b). In the clause, we give the authorities all the options, but we have to be clear that bulk transfer of accounts would be the preferred option if someone were willing to take the accounts, and if the expenses of the bank liquidator cost the FSCS less than paying out compensation. However, we need to operate case by case. It would be up to the authorities to make the best decision, based on the information available at the time.

Question put and agreed to.

Clause 89 ordered to stand part of the Bill.

Clause 90

general powers, duties and effect

Ian Pearson: I beg to move amendment No. 158, in clause 90, page 45, line 44, at end insert
Section 135
Provisional appointment
(a) Treat the reference to the presentation of a winding-up petition as a reference to the making of an application for a bank insolvency order.
(b) Subsection (2) applies in relation to England and Wales and Scotland (and subsection (3) does not apply).
(c) Ignore the reference to the official receiver.
(d) Only a person who is qualified to act as an insolvency practitioner and who consents to act may be appointed.
(e) A provisional bank liquidator may not pay dividends to creditors.
(f) The appointment of a provisional bank liquidator lapses on the appointment of a bank liquidator..
The amendment provides for the appointment by a court of a provisional bank liquidator, following an application for a bank insolvency order. Clause 82(3) specifies that a bank must be given notice of an application for such an order. That is important, because to ensure compatibility with human rights legislation, it is necessary for the directors of the bank or other parties to put their case to the court against the making of the order. That is a standard approach in insolvency proceedings.
There will thus be a gap between making the application for an insolvency order, and the court hearing that considers whether it should be made. It is crucial to avoid the possibility of a run on the bank or any other scramble for assets during that period. In an ordinary compulsory liquidation, if it is considered that assets may be at risk in the period between the filing of an insolvency application and the making of a winding-up order, the court may appoint a provisional liquidator, without notice if necessary, to protect the interests of creditors. The amendment applies that provision to the bank insolvency procedure.
Being able to appoint a provisional bank liquidator will protect the interests of all creditors. For example, such a liquidator should be able to take steps to shut down operations, preventing any scramble for assets. In practice, the period between the application for a bank insolvency order and the court hearing is likely to be hours only, but the courts facility to appoint a provisional bank liquidator will be a useful provision if the court needs to adjourn a hearing.
The possibility of appointing a provisional liquidator is consistent with ordinary compulsory liquidation, in which a provisional liquidator can be appointed under section 135 of the Insolvency Act 1986, after a winding-up petition is filed and before the hearing for the making of the winding-up order. Such an appointment is generally sought only when it is more or less certain that the court will make a winding-up order. A provisional liquidator has powers specified by the court, generally to protect or preserve a companys assets pending the appointment of a liquidator and the making of the winding-up order. Provisional liquidators are common in high-profile and/or complex cases where assets are perceived to be at risk following an application for winding up, such as in situations where it is thought that the directors might attempt to dispose of assets prior to the making of a winding-up order.
Provisional liquidation, therefore, exists to protect the interests of creditors. The Committee should note that the provisional bank liquidators powers are limited. For example, modification (e) means that a provisional bank liquidator may not pay dividends to creditors. Neither would the provisional bank liquidator be able to facilitate the payout to depositors under objective 1, as they would have to wait for a recommendation from the liquidation committee on what option under objective 1 to pursue. Any ambiguities about the powers of the provisional liquidation would be clarified by the court when the appointment was made. We believe that the amendment is necessary and will help to ensure that we can continue to protect creditors.

Amendment agreed to.

Clause 90, as amended, ordered to stand part of the Bill.

Clauses 91 to 100 ordered to stand part of the Bill.

Clause 101

Administration

Ian Pearson: I beg to move amendment No. 159, in clause 101, page 54, line 3, after payments insert or have their accounts transferred.
Under objective 1 of the bank insolvency procedure, which is set out in clause 86(2), the bank liquidator must either work with the FSCS for rapid payout to eligible depositors through the scheme or transfer their accounts to another institution. The amendment is a tidying-up provision reflecting those two strands of objective 1. Under clause 101(5), the bank liquidator can put the bank into normal administration only if appropriate arrangements are in place to deal with depositors still eligible for compensation. The amendment allows those appropriate arrangements for either the payment of eligible depositors or the transfer of their account. It is a simple tidying-up provision.

Amendment agreed to.

Clause 101, as amended, ordered to stand part of the Bill.

Clauses 102 to 106 ordered to stand part of the Bill.

Clause 107

Notice to FSA of preliminary steps

Question proposed, That the clause stand part of the Bill.

Mark Hoban: I think I understand what subsection (9) is intended to do. It is intended to create a condition whereby the notice can prevent wrongful trading from taking place, but I do not think that it has the most elegant phrasing for that intention and I wonder whether the Minister might revisit that language to make it clearer.

Ian Pearson: I will undertake to investigate whether subsection (9) does what it is intended to do and does so in an elegant way. If it can be improved, I will undertake to do so.

Question put and agreed to.

Clause 107 ordered to stand part of the Bill.

Clause 108 ordered to stand part of the Bill.

Clause 109

Application of insolvency law

Amendment made: No. 13, in clause 109, page 57, line 25, leave out subsection (2).[Ian Pearson]

Clause 109, as amended, ordered to stand part of the Bill.

Clause 110

Role of FSCS

Question proposed, That the clause stand part of the Bill.

Mark Hoban: I would like to confirm the purpose of subsection (2)(a), which says that
money may be raised through the imposition of a levy under Part 15 of the Financial Services and Markets Act in respect of expenditure or possible expenditure under this section.
Does expenditure cover only the funds that have been transferred or other costs that might be incurred as well?

Ian Pearson: The clause sets out the role and functions of the FSCS in relation to a bank insolvency. It provides that the FSCS can impose a levy, under its powers in part 15 of FSMA, in order to be able to meet the expenditure under part 2 of the Bill. The word expenditure in subsection (2) covers both the areas that the hon. Gentleman asked about. I hope that that clarification is helpful to the Committee.

Question put and agreed to.

Clause 110 ordered to stand part of the Bill.

Clause 111

Transfer of accounts

Question proposed, That the clause stand part of the Bill.

Mark Hoban: This is a slightly odd question, but does the acquirer have to make a payment to recognise the economic value of the accounts being transferred from the failed bank to a new institution? Of course, in accounting terms they would be transferred at their book value, but the acquiring institution will gain economic value from them, because it has picked up a new raft of current or depositor accounts and some may be profitable, even in these straitened times.

Ian Pearson: My understanding is that that might be the case but it would be the subject of negotiation and agreement. That has already occurred in previous instances and it is likely to occur again, but it will be dependent upon circumstances.

Mark Hoban: Presumably, the profit made from the difference between the book value and the economic value will be used to offset the costs incurred by the FSCS.

Ian Pearson: That is my understanding of the situation.

Question put and agreed to.

Clause 111 ordered to stand part of the Bill.

Clause 112

Rules

Ian Pearson: I beg to move amendment No. 160, in clause 112, page 59, line 1, leave out subsection (2) and insert
(2) After subsection (1) insert
(1A) Rules may also be made for the purpose of giving effect to Part 2 of the Banking Act 2008 (bank insolvency orders); and rules for that purpose shall be made
(a) in relation to England and Wales, by the Lord Chancellor with the concurrence of
(i) the Treasury, and
(ii) in the case of rules that affect court procedure, the Lord Chief Justice, or
(b) in relation to Scotland, by the Treasury..

Roger Gale: With this it will be convenient to discuss Government amendments Nos. 161, 162, 175 and 176.

Ian Pearson: The amendments concern the secondary legislation that will set out rules for the bank insolvency procedure, the BIP, and the bank administration procedure, the BAP. Government amendments Nos. 160 to 162 mean that the general BIP rules for England and Walesthose that do not affect court procedurewill be made with the concurrence of the Treasury, rather then the Secretary of State for Business, Enterprise and Regulatory Reform. Rules that affect court procedure will be drawn up with the concurrence of the Lord Chief Justice, as usual. The Treasury, rather than the Secretary of State, will make the rules for Scotland. Government amendments Nos. 175 and 176 make the same provision for the BAP.
We have done this because the Treasury rather than the Secretary of State for BERR takes policy responsibility for banks. The BIP and BAP have been designed with specific objectives, which have been set out by the Treasury. It is right that the Treasury should take responsibility for agreeing the rules to make the procedures function in pursuit of those objectives. It is likely that the rules for the BIP and BAP will draw on existing insolvency rules. Throughout, the Governments approach has been to ensure that we follow existing insolvency provisions as closely as possible, as I have previously outlined to the hon. Member for Gosport. In considering the rules for the BIP or BAP, the Treasury will draw on the expertise of BERR, the Insolvency Service and others in the practitioner community.

Peter Viggers: It is recognised that it will be necessary to have insolvency rules to supplement and change the Insolvency Rules 1986, which themselves are a gloss on the Insolvency Act 1986. This is obviously important. Will the Minister tell us when we can see these new insolvency rules, because a firm and early timetable would be reassuring for practitioners?

Ian Pearson: I do not have a specific time scale in mind. My understanding is that we have done a lot of work on these rules and they are almost ready. That should give the hon. Gentleman some reassurance.

Peter Viggers: I am much obliged.

Amendment agreed to.

Amendments made: No. 161, in clause 112, page 59, line 2, at end insert
(2A) In subsection (2)
(a) after subsection (1), insert (1A);
(b) in paragraph (b), after Secretary of State insert or the Treasury..
No. 162, in clause 112, page 59, line 11, at end insert
(5) In subsection (5), after the Secretary of State insert or the Treasury.
(6) In paragraph 27 of Schedule 8 to the Insolvency Act 1986 (provisions capable of inclusion in company insolvency rules), after Secretary of State insert or the Treasury..[Ian Pearson.]

Clause 112, as amended, ordered to stand part of the Bill.

Clauses 113 and 114 ordered to stand part of the Bill.

Clause 115

Evidence

Question proposed, That the clause stand part of the Bill.

Roger Gale: With this it will be convenient to consider Government new clause 19Evidence.

Ian Pearson: New clause 19 is a straightforward amendment to correct an omission in the original drafting. Clause 115 deals with the use in evidence of statements made in the course of insolvency proceedings. It simply extends existing provisions of the Insolvency Act 1986 to the bank insolvency procedure. New clause 19 is a technical Government amendment that simply replicates the provisions of clause 115 for the bank administration procedure.

Question put and agreed to.

Clause115 ordered to stand part of the Bill.

Clause116 ordered to stand part of the Bill.

Clause 117

Building Societies

Question proposed, That the clause stand part of the Bill.

Peter Viggers: The clause gives the Treasury the power to apply the bank insolvency procedure to building societies, with any necessary modifications. This will be achieved by secondary legislation using the affirmative procedure. Clause 118 that follows relates to credit unions. I hesitate to risk your wrath, Mr. Gale, but could the Minister respond in terms of credit unions as well as building societies? What is the Governments intention with regard to bringing forward secondary legislation by way of affirmative procedure? Do the Government intend a short time frame or does this provision give the Government power to introduce the secondary legislation in due course?

Roger Gale: I think my wrath might be risked on that. Would the Minister like to respond to both?

Ian Pearson: Yes, Mr. Gale. In line with our objectives of protecting all depositors and maintaining financial stability, clause 117 gives the Treasury a power to extend the provisions of the BIP to building societies and clause 118 gives it the power, if necessary, to extend it further to credit unions. We consulted widely on this issue and extending the special resolution regime to building societies and credit unions is strongly supported by stakeholders, including the Building Societies Association. The reason why detailed provision for applying the BIP to building societies has not been put on the face of the Bill is that insolvency legislation is complex and building society and credit unions have their own legal features, which differ greatly from those of banks.
We believe that time needs to be taken to ensure that procedures are brought forward that work for building societies and are fit for purpose. The Government will consult on the necessary regulations, which will be laid before the House in due course. The hon. Member for Gosport presses me on when that is likely to be. The best answer I can give is soon. That is not a definite response, but we do not intend to delay this matter. We want to continue to ensure protection for depositors, whether they are in banks, building societies or credit unions. The new insolvency procedures for building societies and credit unions will be very similar to the provisions in the BIP. That has been welcomed by stakeholders.

Question put and agreed to.

Clause 117 ordered to stand part of the Bill.

Clauses 118 and 119 ordered to stand part of the Bill.

Clause 120

Scottish partnerships

Question proposed, That the clause stand part of the Bill.

Stewart Hosie: Obviously the clause will give the Secretary of State powers to include Scottish partnerships as institutions that might fail and therefore be required to be covered by the special regime and so on. However, I am sure that he knows, because I am sure that the Accountant in Bankruptcy has already advised the Government, that if a partnership fails it is dealt with by sequestration rather than liquidation. That does not appear to be anywhere in the Bill. Notwithstanding the table of modifications or comments on other pieces of legislation, which was in a previous clause, the clause does not appear to take cognisance of the sequestration rules and law that apply in Scotland in relation to partnerships. So can I have confirmation that that will be changed, or can the Minister simply confirm that this new insolvency procedure will apply with the necessary modifications as per the previous table which describes the bits of legislation and how they will now be interpreted?

Ian Pearson: Following a helpful brief conversation that I had with the hon. Gentleman earlier, I have done a limited amount of checking. We are aware of the points that he makes. It is our intention that regulations made under clause 120 will reflect the legal terms and practices that are used in Scotland. We are aware of the situation and will endeavour to ensure that the legislation is fit for purpose.

Question put and agreed to.

Clause 120 ordered to stand part of the Bill.

Clause 121 ordered to stand part of the Bill.

Clause 122

Consequential provision

Amendment made: No. 14, in clause 122, page 61, line 26, leave out and an Act of the Scottish Parliament.[Ian Pearson.]

Clause 122, as amended, ordered to stand part of the Bill.
Further consideration adjourned.[Mr. Blizzard.]

Adjourned accordingly at twenty-six minutes to Three oclock till Tuesday 18 November at half-past Ten oclock.